viv20180323_6k.htm - Generated by SEC Publisher for SEC Filing

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of March, 2018

Commission File Number: 001-14475



TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)

 

TELEFONICA BRAZIL S.A.  
(Translation of registrant’s name into English)

 

Av. Eng° Luís Carlos Berrini, 1376 -  28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)


 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F

X

 

Form 40-F

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

 

 

No

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

 

 

No

 

 

 

 

 
 

 

 

 

 

 

 

 

 

TELEFÔNICA BRASIL S.A.

 

 

QUARTERLY INFORMATION

 

DECEMBER 31, 2017

 

 

 

 

 

 

 

 

 

(A free translation of the original in Portuguese)

 

1


 
 

Independent auditor's report

 

 

To the Board of Directors and Stockholders

Telefônica Brasil S.A.

Opinion

 

We have audited the accompanying parent company financial statements of Telefônica Brasil S.A. ("Company" or "Parent company"), which comprise the balance sheet as at December 31, 2017 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of Telefônica Brasil S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2017 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telefônica Brasil S.A. and of Telefônica Brasil S.A. and its subsidiaries as at December 31, 2017, and the financial performance and cash flows for the year then ended, as well as the consolidated financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Basis for opinion

 

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the parent company and consolidated financial statements" section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

 


2

 
 

Why it is a key audit matter

How the matter was addressed in the audit

 

 

Provision for tax and regulatory contingencies

 

 

 

The Company and its subsidiaries are parties to a number of judicial and administrative civil, labor, tax and regulatory proceedings which arise in the normal course of their activities (Notes 3 and 18 to the financial statements). With respect to these tax and regulatory areas, the Company and its subsidiaries, at December 31, 2017, present loss contingencies totaling R$ 44 billion and R$6.4 billion, respectively, of which R$ 3.5 billion and R$ 1.1 billion, respectively, had been provided for as management, supported by external legal counsel, believes the likelihood of loss to be probable.

 

Because of the complexity of the tax and regulatory environment, the significance of the amounts involved and the critical judgment required to estimate the likelihood of loss, any changes in perspectives and/or judgment may significantly affect the financial statements of the Company and its subsidiaries.

 

For these reasons, we focused on the calculation and disclosure of these contingencies during our audit.

Our audit procedures included:

a) Obtaining confirmation from the Company's external legal counsel for ongoing tax and regulatory proceedings, as well as management’s estimates of the amounts and the likelihood of loss;

b) Having management obtain, for significant tax and regulatory proceedings, with more subjective and complex interpretations, a position from renowned, independent experts on the likelihood of loss, and the basis for a defense;

 

c) For the more significant contingencies, meeting with management to discuss and assess, with the support of our experts, when applicable, the Company’s basis of conclusion;

d) Assessing the adequacy of the disclosures presented in the notes to the financial statements; and

 

e) Understanding and assessing the principal internal controls over the contingency identification and registration/disclosure processes.

 

We have concluded that management has adequate internal controls and accounting policies, as well as supporting documentation, to provide a reasonable and consistent basis for its conclusions.

 

 

 

 

 

 

Recognition of unbilled revenue

 

 

The recognition of revenue obtained from telecommunication services is considered a significant inherent risk, because it involves complex billing systems, requiring the processing of large volumes of data across varied product portfolios, which contain pricing inputs from a number of marketing plans (Notes 3 and 23 to the financial statements).

 

Additionally, within this context, revenues are recognized on a monthly basis upon inflow of economic benefits and when there are the billed and unbilled revenues, arising from the services rendered between the billing date and the end of the month, being identified, processed, and recognized at the end of the service month. Unbilled revenue recorded in the month during which the services were rendered is reversed in the month subsequent to the effective billing month, and a new calculation for the measurement of unbilled revenue from services rendered during that month is made. This practice is repeated during the year.

 

We focused on this area during our audit because any inconsistency in the calculation of these estimates may significantly affect the financial statements of the Company and its subsidiaries.

Our audit procedures included, among others:

a) Assessing and testing the relevant Information Technology (IT) systems;

b) Testing the transactions of revenue from services rendered on a non-statistical sampling basis;

c) Understanding and assessing management’s estimates to determine realized unbilled revenue at the end of the year;

 

d) Recalculating the estimate of revenue realized but not billed at the end of the year, and comparing these estimates with revenue effectively billed in the month after the closing;

e) Adequacy of disclosures presented in the notes to the financial statements; and

 

f) Understanding and assessing the principal internal controls over the measurement and accounting recognition of unbilled revenue from services rendered.

 

We have established that the internal controls and the estimates used by management have applied a reasonable basis for the recognition of revenue, consistent with the information included in the financial statements.

 

 

 

 

 

Internal control and information technology environment

 

 

 

 

 

 

The Company is engaged in the provision of telecommunications services and in the development of activities that are necessary or support the performance of such services. The services include: (i) Switched Fixed Telephone Service ("STFC"), (ii) Multimedia Communication Service ("SCM"), data communication, including broadband Internet);

(iii) Personal Mobile Service ("SMP"); and (iv) Cable Television Network (Conditioned Access Service - "SEAC"), throughout Brazil, via concessions and authorizations, as established in the General Grant Plan ("PGO"). The Company is highly dependent on its information technology structure, which processes a considerable volume of transactions from its business operations.

Because of the Company's history of acquisitions as well as the volume of the Company's transactions, its information technology structure comprises more than one technological platform, each with different processes and segregated controls, which require a robust internal control system. Management is required to closely monitor daily operations, including the follow-up and compilation of physical quantitative, financial, and fiscal information from the services rendered.

We focused on this area in our audit because we identified a number of both manual and automated operational controls, a high level of system accesses, and decentralized segregation of duties environment. The assessment of the effectiveness of the processes and controls is critical to the audit process and to the definition of the intended scope for obtaining the necessary comfort, because a failure in the controls and/or processes might result in the incorrect processing of information and, consequently, in the improper presentation of the financial statements.

 

 

With the support of our information technology experts, our audit procedures included the understanding and assessment of the information technology environment and the automated and manual controls over the application systems that are relevant to the preparation of the financial statement.

The procedures carried out comprise the combination of testing of the principal controls (and, when necessary, compensatory control testing), the testing of information security components, of privileged management access and of segregation of duties, that impact the financial statements. We also tested the automated and manual accounting entries, using a sample defined based on specific criteria related to the control transgression risk.

The results of these procedures provided appropriate and sufficient audit evidence regarding the proper preparation of the financial statements.

3


 
 

Other matters

 

Statements of value added

 

The parent company and consolidated statements of value added for the year ended December 31, 2017, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the financial statements of the Company and its subsidiaries. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the Brazilian Technical Pronouncements Committee CPC 09 - "Statement of Value Added". In our opinion, these statements of value added have been properly prepared, in all material respects, in accordance with the criteria established in the Technical Pronouncement, and are consistent with the parent company and consolidated financial statements taken as a whole.

 

Prior-year information

 

The financial statements for the year ended December 31, 2016 were audited by another firm of independent auditors, whose report, dated February 17, 2017, expressed an unqualified opinion on those statements.

Other information accompanying the parent company and consolidated financial statements and the auditor's report

 

The Company's management is responsible for the other information that comprises the Management Report.

 

Our opinion on the parent company and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon.

 

In connection with the audit of the parent company and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the parent company and consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Management Report, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of management and those charged with governance for the parent company and consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the parent company and consolidated financial statements in accordance with accounting practices adopted in Brazil and with the IFRS as issued by the IASB, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the parent company and consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the financial reporting process of the Company and its subsidiaries.

 

 

 

 

 

 

 

 

 

4


 
 

Auditor's responsibilities for the audit of the parent company and consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the parent company and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

       Identify and assess the risks of material misstatement of the parent company and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

       Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of the Company and its subsidiaries.

 

       Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

       Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the parent company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

       Evaluate the overall presentation, structure and content of the parent company and consolidated financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

       Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

 

5


 
 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

 

 

São Paulo, February 16, 2018

 

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

 

 

Estela Maris Vieira de Souza

Contadora CRC 1RS046957/O-3

 

 

 

6


 
 

 

TELEFÔNICA BRASIL S.A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,  2017 and 2016

(In thousands of reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

 

 

Company

 

Consolidated

ASSETS

Note

12.31.17

12.31.16

 

12.31.17

 

12.31.16

 

LIABILITIES AND EQUITY

Note

 

12.31.17

 

12.31.16

 

12.31.17

 

12.31.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

16,668,039

17,482,265

 

16,731,666

 

18,398,995

 

Current liabilities

 

 

18,819,861

 

20,280,286

 

17,862,531

 

20,438,575

Cash and cash equivalents

4

3,681,173

4,675,627

 

4,050,338

 

5,105,110

 

Personnel, social charges and benefits

14

 

648,957

 

746,798

 

723,380

 

760,643

Trade accounts receivable

5

8,413,403

8,282,685

 

8,588,466

 

8,701,688

 

Trade accounts payable

15

 

8,560,844

 

7,539,395

 

7,447,100

 

7,611,246

Inventories

6

324,711

368,151

 

348,755

 

410,413

 

Taxes, charges and contributions

16

 

1,669,741

 

1,698,334

 

1,731,315

 

1,770,731

Taxes recoverable

7.a

2,386,258

2,952,622

 

2,563,990

 

3,027,230

 

Dividends and interest on equity

17

 

2,396,116

 

2,195,031

 

2,396,116

 

2,195,031

Judicial deposits and garnishments

8

324,465

302,349

 

324,638

 

302,424

 

Provisions

18

 

1,434,911

 

1,183,623

 

1,434,911

 

1,183,623

Prepaid expenses

9

425,298

336,508

 

446,439

 

343,092

 

Deferred revenue

19

 

370,493

 

428,488

 

372,561

 

429,853

Dividends and interest on equity

17

323,206

-

 

-

 

-

 

Loans and financing

20

 

1,620,955

 

2,542,975

 

1,620,955

 

2,542,975

Derivative financial instruments

31

87,643

68,943

 

87,643

 

68,943

 

Debentures

20

 

1,412,486

 

2,120,504

 

1,412,486

 

2,120,504

Other assets

10

701,882

495,380

 

321,397

 

440,095

 

Derivative financial instruments

31

 

5,107

 

183,212

 

5,239

 

183,212

 

 

 

 

 

 

 

 

 

Other liabilities

21

 

700,251

 

1,641,926

 

718,468

 

1,640,757

Noncurrent assets

 

85,495,114

84,475,240

 

84,651,169

 

83,667,264

 

 

 

 

 

 

 

 

 

 

 

Long-term assets

 

 

 

 

 

 

 

 

Noncurrent liabilities

 

 

13,881,934

 

12,432,800

 

14,058,946

 

12,383,265

Short-term investments pledged as collateral

 

81,472

78,153

 

81,486

 

78,166

 

Personnel, social charges and benefits

14

 

21,648

 

11,016

 

23,284

 

11,016

Trade accounts receivable

5

167,682

200,537

 

273,888

 

305,411

 

Trade accounts payable

15

 

-

 

71,907

 

-

 

71,907

Taxes recoverable

7.a

740,104

474,240

 

743,285

 

476,844

 

Taxes, charges and contributions

16

 

18,463

 

20,996

 

49,448

 

49,131

Deferred taxes

7.b

-

-

 

371,408

 

27,497

 

Deferred taxes

7.b

 

709,325

 

88,695

 

709,325

 

-

Judicial deposits and garnishments

8

6,155,821

5,974,733

 

6,339,167

 

6,049,142

 

Provisions

18

 

6,566,056

 

6,591,493

 

6,709,839

 

6,625,638

Prepaid expenses

9

21,684

35,340

 

23,116

 

36,430

 

Deferred revenue

19

 

350,637

 

511,786

 

350,637

 

511,786

Derivative financial instruments

31

76,762

144,050

 

76,762

 

144,050

 

Loans and financing

20

 

2,320,147

 

3,126,792

 

2,320,147

 

3,126,792

Other assets

10

86,345

53,363

 

88,935

 

55,565

 

Debentures

20

 

3,108,253

 

1,433,803

 

3,108,253

 

1,433,803

Investments

11

1,949,276

1,407,155

 

98,902

 

85,745

 

Derivative financial instruments

31

 

15,412

 

1,404

 

15,412

 

1,404

Property, plant and equipment

12

33,112,532

31,837,549

 

33,222,316

 

31,924,918

 

Other liabilities

21

 

771,993

 

574,908

 

772,601

 

551,788

Intangible assets

13

43,103,436

44,270,120

 

43,331,904

 

44,483,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

32,701,795

 

32,713,086

 

31,921,477

 

32,821,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

69,461,358

 

69,244,419

 

69,461,358

 

69,244,419

 

 

 

 

 

 

 

 

 

Capital

22

 

63,571,416

 

63,571,416

 

63,571,416

 

63,571,416

 

 

 

 

 

 

 

 

 

Capital reserves

22

 

1,213,522

 

1,272,581

 

1,213,522

 

1,272,581

 

 

 

 

 

 

 

 

 

Income reserves

22

 

2,463,228

 

2,474,974

 

2,463,228

 

2,474,974

 

 

 

 

 

 

 

 

 

Other comprehensive income

22

 

21,328

 

11,461

 

21,328

 

11,461

 

 

 

 

 

 

 

 

 

Additional proposed dividends

22

 

2,191,864

 

1,913,987

 

2,191,864

 

1,913,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

  102,163,153

  101,957,505

 

 101,382,835

 

  102,066,259

 

TOTAL LIABILITIES AND EQUITY

 

 

  102,163,153

 

  101,957,505

 

  101,382,835

 

  102,066,259

 

 

 

7


 
 

 

TELEFÔNICA BRASIL S.A.





Income Statements

Years ended December 31, 2017 and 2016

(In thousands of reais, except earnings per share)

 

 

 

 

Company

 

Consolidated

 

Note

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

Net operating revenue

23

 

  39,343,728

 

  38,625,395

 

  43,206,832

 

  42,508,459

 

 

 

 

 

 

 

 

 

 

Cost of sales

24

 

(19,135,195)

 

(18,734,552)

 

(20,272,530)

 

(20,823,014)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

  20,208,533

 

  19,890,843

 

  22,934,302

 

  21,685,445

 

 

 

 

 

 

 

 

 

 

Operating income (expenses)

 

 

(15,301,695)

 

(14,753,448)

 

(16,302,065)

 

(15,317,426)

Selling expenses

24

 

(12,758,952)

 

(11,996,153)

 

(13,136,474)

 

(12,455,366)

General and administrative expenses

24

 

  (2,334,905)

 

  (2,685,366)

 

  (2,443,105)

 

  (2,793,386)

Other operating income

25

 

782,932

 

939,516

 

464,182

 

968,479

Other operating expenses

25

 

(990,770)

 

  (1,011,445)

 

  (1,186,668)

 

  (1,037,153)

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

4,906,838

 

5,137,395

 

6,632,237

 

6,368,019

 

 

 

 

 

 

 

 

 

 

Financial income

26

 

1,675,172

 

2,654,574

 

1,755,958

 

2,781,359

Financial expenses

26

 

  (2,636,113)

 

  (3,936,318)

 

  (2,659,002)

 

  (4,015,900)

Equity pickup

11

 

1,303,484

 

845,776

 

1,580

 

1,244

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

5,249,381

 

4,701,427

 

5,730,773

 

5,134,722

 

 

 

 

 

 

 

 

 

 

Income and social contribution taxes

27

 

(640,591)

 

(616,185)

 

  (1,121,983)

 

  (1,049,480)

 

 

 

 

 

 

 

 

 

 

Net income for the year

 

 

4,608,790

 

4,085,242

 

4,608,790

 

4,085,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share (in R$)

22

 

  2.56

 

  2.27

 

 

 

 

Basic and diluted earnings per preferred share (in R$)

22

 

  2.82

 

  2.50

 

 

 

 

 

8


 
 

 

TELEFÔNICA BRASIL S.A.


Statements of Changes in Equity


Years ended December 31, 2017 and 2016


(In thousands of reais)




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital reserves

 

Income reserves

 

 

 

 

 

 

 

 

 

Capital

 

Special goodwill reserve

 

Other capital reserves

 

Treasury shares

 

Legal reserve

 

Tax incentive reserve

 

Expansion and modernization reserve

 

Retained earnings

 

 Proposed additional dividends

 

Other comprehensive income

 

Total equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2015

     63.571.416

 

            63.074

 

       1.297.295

 

           (87.805)

 

       1.703.643

 

             6.928

 

          700.000

 

                  -  

 

       1.287.223

 

              25.468

 

     68.567.242

Payment of additional dividend for 2015

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (1.287.223)

 

                       -

 

      (1.287.223)

Prescribed equity instruments, including unclaimed dividends and interest on equity

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

          221.559

 

                    -

 

                       -

 

          221.559

Preferred shares delivered referring to the judicial process of expansion plan

                    -

 

                    -

 

                    2

 

                  15

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                       -

 

                  17

DIPJ adjustment - Tax incentives

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

            10.141

 

                    -

 

           (10.141)

 

                    -

 

                       -

 

                  -  

Other comprehensive income

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

         (156.266)

 

                    -

 

             (14.007)

 

         (170.273)

Net income for the year

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

       4.085.242

 

                    -

 

                       -

 

       4.085.242

Allocation of income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Legal reserve

                    -

 

                    -

 

                    -

 

                    -

 

          204.262

 

                    -

 

                    -

 

         (204.262)

 

                    -

 

                       -

 

                  -  

     Interim interest on equity

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (2.172.145)

 

                    -

 

                       -

 

      (2.172.145)

     Reversal of expansion and Modernization Reserve

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

         (700.000)

 

          700.000

 

                    -

 

                       -

 

                  -  

     Expansion and Modernization Reserve

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

          550.000

 

         (550.000)

 

                    -

 

                       -

 

                  -  

     Additional proposed dividends

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (1.913.987)

 

       1.913.987

 

                       -

 

                  -  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2016

     63.571.416

 

            63.074

 

       1.297.297

 

           (87.790)

 

       1.907.905

 

            17.069

 

          550.000

 

                   (0)

 

       1.913.987

 

              11.461

 

     69.244.419

Payment of additional dividend for 2016

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (1.913.987)

 

                       -

 

      (1.913.987)

Unclaimed dividends and interest on equity

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

          101.778

 

                    -

 

                       -

 

          101.778

Repurchase of preferred shares

                    -

 

                    -

 

                    -

 

                 (32)

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                       -

 

                 (32)

Preferred shares delivered referring to the judicial process of expansion plan

                    -

 

                    -

 

                    -

 

                    2

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                       -

 

                    2

DIPJ adjustment - Tax incentives

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

            10.815

 

                    -

 

           (10.815)

 

                    -

 

                       -

 

                  -  

Other comprehensive income

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

         (113.811)

 

                    -

 

                9.867

 

         (103.944)

Equity transactions (Note 1 c.1)

                    -

 

                    -

 

           (59.029)

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                       -

 

           (59.029)

Net income for the year

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

       4.608.790

 

                    -

 

                       -

 

       4.608.790

Allocation of income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Legal reserve

                    -

 

                    -

 

                    -

 

                    -

 

          230.439

 

                    -

 

                    -

 

         (230.439)

 

                    -

 

                       -

 

                  -  

     Interim interest on equity

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (2.416.639)

 

                    -

 

                       -

 

      (2.416.639)

     Reversal of expansion and Modernization Reserve

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

         (550.000)

 

          550.000

 

                    -

 

                       -

 

                  -   

     Expansion and Modernization Reserve

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

          297.000

 

         (297.000)

 

                    -

 

                       -

 

                  -  

     Additional proposed dividends

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

                    -

 

      (2.191.864)

 

       2.191.864

 

                       -

 

                  -  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

     63.571.416

 

            63.074

 

       1.238.268

 

           (87.820)

 

       2.138.344

 

            27.884

 

          297.000

 

                   (0)

 

       2.191.864

 

              21.328

 

     69.461.358

 

 

 

 

9


 
 

 

TELEFÔNICA BRASIL S.A.

telefonica

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

Years ended December 31, 2017 and 2016

 

 

 

 

 

 

 

 

(In thousands in reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

2017

 

2016

 

2017

 

2016

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

              5.249.381

 

              4.701.427

 

              5.730.773

 

              5.134.722

Ajustement of:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

              7.826.184

 

              7.166.177

 

              7.853.734

 

              7.654.406

Foreign exchange on loans and derivative financial instruments

 

                   60.237

 

                   75.075

 

                   57.832

 

                   75.075

Monetary losses

 

                 536.891

 

                 632.120

 

                 543.852

 

                 620.570

Equity pickup

 

             (1.303.484)

 

                (845.776)

 

                   (1.580)

 

                   (1.244)

Gains on write-off/sale of assets

 

                  (74.619)

 

                (447.178)

 

                  (74.337)

 

                (451.215)

Provision for impairment - accounts receivable

 

              1.405.085

 

              1.225.742

 

              1.481.015

 

              1.348.221

Change in liability provisions

 

                  (58.423)

 

                 214.016

 

                  (93.479)

 

                 273.664

Write-off and reversals for impairment - inventories

 

                  (45.109)

 

                  (34.151)

 

                  (45.089)

 

                  (36.898)

Pension plans and other post-retirement benefits

 

                   30.877

 

                    5.962

 

                   31.511

 

                    5.243

Provisions for tax, civil, labor and regulatory contingencies

 

                 990.770

 

                 953.003

 

                 999.419

 

                 985.176

Interest expense

 

                 926.220

 

              1.009.060

 

                 926.220

 

              1.049.553

Decrease divestiture

 

                           -

 

                  (20.551)

 

                           -

 

                  (32.924)

Decrease customer loyalty program

 

                   (5.856)

 

                  (39.683)

 

                   (5.856)

 

                  (39.683)

Other

 

                   (5.499)

 

                          (3)

 

                   (2.881)

 

                          (3)

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Trade accounts receivable

 

             (1.502.948)

 

             (1.373.628)

 

             (1.274.181)

 

             (1.739.550)

Inventories

 

                   88.549

 

                 224.264

 

                 106.393

 

                 230.116

Taxes recoverable

 

                (338.754)

 

                (701.786)

 

                (330.398)

 

                (823.360)

Prepaid expenses

 

                   25.118

 

                 112.421

 

                   11.051

 

                 105.845

Other assets

 

                (244.434)

 

                   92.839

 

                   82.109

 

                   23.202

Personnel, social charges and benefits

 

                  (87.209)

 

                   31.694

 

                  (42.830)

 

                   53.005

Trade accounts payable

 

              1.217.264

 

                (798.909)

 

                 121.577

 

                (707.998)

Taxes, charges and contributions

 

                 220.381

 

                 439.125

 

                 180.915

 

                 601.970

Other liabilities

 

             (2.078.311)

 

             (1.350.044)

 

             (2.065.631)

 

             (1.392.510)

 

 

              7.582.930

 

              6.569.789

 

              8.459.366

 

              7.800.661

 

 

 

 

 

 

 

 

 

Cash generated from operations

 

            12.832.311

 

            11.271.216

 

            14.190.139

 

            12.935.383

 

 

 

 

 

 

 

 

 

Interest paid

 

                (859.586)

 

                (886.156)

 

                (859.586)

 

                (926.223)

Income and social contribution taxes paid

 

                           -

 

                (199.605)

 

                (689.493)

 

                (568.335)

 

 

 

 

 

 

 

 

 

Net cash (used in) generated by operating activities

 

            11.972.725

 

            10.185.455

 

            12.641.060

 

            11.440.825

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to PP&E, intangible assets and others

 

             (8.195.876)

 

             (6.828.200)

 

             (8.367.660)

 

             (7.470.869)

Cash received from sale of PP&E items

 

                   19.355

 

                 778.240

 

                   20.672

 

                 778.819

Cash paid for acquisition of companies

 

                           -

 

                           -

 

                (250.000)

 

                           -

Cash received from sale of investments

 

                           -

 

                           -

 

                   31.804

 

                           -

Redemption of (increase in) judicial deposits

 

                   85.179

 

                (183.845)

 

                   83.500

 

                (202.525)

Dividends and interest on equity received

 

                 384.588

 

                 767.554

 

                           -

 

                           3

Cash and cash equivalents by incorporation

 

                           -

 

                 358.579

 

                   43.351

 

                           -

Other

 

                       111

 

                           -

 

                       111

 

                           -

 

 

 

 

 

 

 

 

 

Net cash (used in) generated by investing activities

 

             (7.706.643)

 

             (5.107.672)

 

             (8.438.222)

 

             (6.894.572)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of loans, financing and debentures

 

             (4.485.495)

 

             (2.001.863)

 

             (4.485.495)

 

             (2.171.100)

Loans and financing raised

 

              3.055.876

 

                 466.629

 

              3.055.876

 

                 466.629

Received of derivative financial instruments

 

                 104.214

 

                 132.410

 

                 107.846

 

                 132.410

Payment of derivative financial instruments

 

                (266.548)

 

                (239.379)

 

                (267.254)

 

                (239.379)

Payment for reverse split of shares

 

                           -

 

                      (164)

 

                           -

 

                      (164)

Dividend and interest on equity paid

 

             (3.668.551)

 

             (2.966.384)

 

             (3.668.551)

 

             (2.966.384)

Treasury shares

 

                        (32)

 

                           -

 

                        (32)

 

                           -

 

 

 

 

 

 

 

 

 

Net cash (used in) generated by financing activities

 

             (5.260.536)

 

             (4.608.751)

 

             (5.257.610)

 

             (4.777.988)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

                (994.454)

 

                 469.032

 

             (1.054.772)

 

                (231.735)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the year

 

              4.675.627

 

              4.206.595

 

              5.105.110

 

              5.336.845

Cash and cash equivalents at end of the  year

 

              3.681.173

 

              4.675.627

 

              4.050.338

 

              5.105.110

 

 

 

 

 

10


 

 

 

TELEFÔNICA BRASIL S.A.

 

 

 

 

 

 

 

 

 

Statements of Other Comprehensive Income

 

 

 

 

 

 

 

 

 

Years ended December 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

(In thousands of reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

Note

 

2017

 

2016

 

2017

 

2016

Net income for the year

 

 

              4.608.790

 

              4.085.242

 

              4.608.790

 

              4.085.242

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (losses) that may be reclassified into income (losses) in subsequent periods

 

 

                    9.867

 

                  (14.007)

 

                    9.867

 

                  (14.007)

Unrealized gains ( losses) on investments available for sale

11

 

                       338

 

                         83

 

                       338

 

                         83

Gains (losses) on derivative financial instruments

31

 

                   (2.417)

 

                    4.803

 

                   (2.417)

 

                    4.803

Taxes

 

 

                       707

 

                   (1.661)

 

                       707

 

                   (1.661)

 

 

 

 

 

 

 

 

 

 

Cumulative Translation Adjustments (CTA) on transactions in foreign currency

11

 

                   11.239

 

                  (17.232)

 

                   11.239

 

                  (17.232)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (losses) to be reclassified into income (losses) in subsequent periods

 

 

                (107.694)

 

                (156.186)

 

                (113.811)

 

                (156.266)

Actuarial gains (losses) and limitation effect of the assets of surplus plan

30

 

                (163.174)

 

                (236.645)

 

                (171.296)

 

                (236.767)

Taxes

 

 

                   55.480

 

                   80.459

 

                   57.485

 

                   80.501

 

 

 

 

 

 

 

 

 

 

Interest in comprehensive income of subsidiaries

11

 

                   (6.117)

 

                        (80)

 

                           -

 

                           -

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

                (103.944)

 

                (170.273)

 

                (103.944)

 

                (170.273)

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year

 

 

              4.504.846

 

              3.914.969

 

              4.504.846

 

              3.914.969

 

 

 

 

11


 

 

TELEFÔNICA BRASIL S.A.

 

 

 

 

 

 

 

 

Statements of Value Added

 

 

 

 

 

 

 

 

Years ended December 31, 2017 and 2016

 

 

 

 

 

 

 

 

(In thousands in reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Revenues

 

            55.205.339

 

            53.004.204

 

            58.937.750

 

            57.732.738

Sale of goods and services

 

            54.919.544

 

            53.209.390

 

            59.265.466

 

            57.897.521

Other revenues

 

              1.690.880

 

              1.020.556

 

              1.153.299

 

              1.183.438

Provision for impairment of trade accounts receivable

 

             (1.405.085)

 

             (1.225.742)

 

             (1.481.015)

 

             (1.348.221)

 

 

 

 

 

 

 

 

 

Inputs acquired from third parties

 

           (18.696.568)

 

           (18.491.586)

 

           (19.942.270)

 

           (20.418.608)

Cost of goods and products sold and services rendered

 

             (9.316.305)

 

             (9.919.037)

 

           (10.412.308)

 

           (11.611.718)

Materials, electric energy, third-party services and other expenses

 

             (9.499.989)

 

             (9.033.230)

 

             (9.648.698)

 

             (9.273.974)

Loss/recovery of assets

 

                 119.726

 

                 460.681

 

                 118.736

 

                 467.084

 

 

 

 

 

 

 

 

 

Gross value added

 

            36.508.771

 

            34.512.618

 

            38.995.480

 

            37.314.130

 

 

 

 

 

 

 

 

 

Withholdings

 

             (7.826.184)

 

             (7.166.177)

 

             (7.853.734)

 

             (7.654.406)

Depreciation and amortization

 

             (7.826.184)

 

             (7.166.177)

 

             (7.853.734)

 

             (7.654.406)

 

 

 

 

 

 

 

 

 

Net value added produced

 

            28.682.587

 

            27.346.441

 

            31.141.746

 

            29.659.724

 

 

 

 

 

 

 

 

 

Value added received in transfer

 

              2.978.656

 

              3.500.350

 

              1.757.538

 

              2.782.603

Equity pickup

 

              1.303.484

 

                 845.776

 

                    1.580

 

                    1.244

Financial income

 

              1.675.172

 

              2.654.574

 

              1.755.958

 

              2.781.359

 

 

 

 

 

 

 

 

 

Total undistributed value added

 

            31.661.243

 

            30.846.791

 

            32.899.284

 

            32.442.327

 

 

 

 

 

 

 

 

 

Distribution of value added

 

           (31.661.243)

 

           (30.846.791)

 

           (32.899.284)

 

           (32.442.327)

 

 

 

 

 

 

 

 

 

Personnel,social charges and benefits

 

             (3.783.519)

 

             (3.989.707)

 

             (4.107.176)

 

             (4.328.985)

Direct compensation

 

             (2.601.425)

 

             (2.723.511)

 

             (2.803.226)

 

             (2.961.166)

Benefits        

 

                (996.215)

 

             (1.081.627)

 

             (1.101.174)

 

             (1.167.746)

Unemployment Compensation Fund (FGTS)              

 

                (185.879)

 

                (184.569)

 

                (202.776)

 

                (200.073)

Taxes, charges and contributions

 

           (17.824.012)

 

           (16.413.347)